B) China

China’s shift began following the 19th party congress is October 2017 when the central government signaled its intent to shift from an economic model heavily reliant on exports to one driven by the services sector and domestic consumption.

Book recommendation

Beyond Blockchain: The Death of the Dollar and the Rise of Digital Currency

Wednesday, December 5, 2018

Daily Writing

Market Overview

Markets are closed today for a National Day of Mourning in honor of late President George HW Bush. Markets will reopen on Thursday.

Investors are still reeling from the sudden 3.00% drop in U.S. equities on Tuesday. There are indications that China is actively looking to cooperate more with the United States, but there is no telling what that means for the markets when we resume trading at 9:30 AM on Thursday.

Little questions I’d like to answer eventually

What does an inverted yield curve mean for the broader economy?

The price of palladium has exceeded the price of gold for the first time in 16 years. What does this mean? Why is this important? Who does this impact most? What is the use case for palladium?

China and Trump and America and trade wars, etc.

Following President Donald Trump’s open questioning of China’s commitment to reduce tariffs on US imports, China’s ministry of commerce stated publicly that it is committed to a 90-day timeline to address specific items.

Global markets cheered the weekend accord on Monday, only to reverse course Tuesday as doubts emerged over precisely what the world’s two largest economies had agreed on.

There is no good indication of how markets will respond to news that China’s ministry of commerce confirmed their 90-day commitment to purchase US imports and move to reduce or entirely remove tariffs within 90 days of December 1.

Government Bonds (German ones specifically)

The yield on the German 10-year government bond (also known as “the Bund” has fallen to 0.27%.

Why is this important?

When it comes to bonds, price and yield move inversely. When the price of a bond moves higher, the yield moves lower. Declining bond yields in the German Bund (or other comparably safe assets such as U.S. Treasuries) indicate that global investors are seeking safer assets to park their money. For example, if European investors are starting to feel uncertain about European equities, they may choose to rotate their assets into bonds where they know they can find a guaranteed “risk-free” rate of return.

Here’s what we’re thinking: a 0.27% yield in nominal terms is negative in real terms. Negative real yield means that once the bond matures, the investor will end of losing money.

If global investors can’t buy their domestic bonds and they can’t buy German bunds, then where do they go?

The clear answer is US Treasury Bonds. At the time of writing, the yield on the US 10-year Treasury Note is 2.91%. An important thing to note is that the real yield of U.S. Treasuries after taking long-term inflation into account is just 0.97%. Compared to the negative-yielding German or Japanese Government Bonds (or even gold) a 2.91% yield is pretty darn attractive.

Miscellaneous items

Brexit

There’s still no Brexit deal. I’m not entirely in tune with the happenings of Brexit (which from what I understand is likely for the better), but it feels like the indecision surrounding Brexit negotiations between the May government and the EU is fueling more anxiety and fear in the market than a hard Brexit would. I understand that the issue is far more complicated than that, but that’s just how it feels to me.

We will consider a deeper dive into the Brexit narrative at some point, but for now, we’ll leave it here.

Personal Thoughts

Overall this blog is intended to be an exploration of my thinking and analysis of the world over time. I hope whatever I write here can be informative for others as well. My approach is to continually ask questions about things I don’t understand clearly, because of this my writing contains unanswered questions. I hope moving forward I can develop a community of people who possess a learner’s mindset. Ideally, those who follow my blog are skilled in areas where I am weak so that I can learn as well. My sincere wish is to contribute to the thinking of others.

Tuesday, November 27, 2018

Daily Writing

8:58 AM

Gold remains rangebound hovering around the $1200 spot price. The price of gold has not moved outside of $1200 to $1235 per ounce since the middle of August.

Oil has started to hold ground at $51.00/barrel. We found an informative clip assessing the current oil pricing situation. In the current environment, which countries have the most impact on the price of oil? Which events or types of events have the most significant impact on the global price of oil?

German bunds move higher, as the yield on the 10-year bund continues to move lower. How are German and other European equities performing? What determines the price of German government bonds? How much impact does the European Central Bank (ECB) policy have on the domestic monetary policy of sovereign European states?

Thursday, November 15, 2018

Daily Writing

9:44 AM

GBP/USD is trading much lower today amid Brexit negotiations which seem to be getting nowhere.

US treasury yields are also ticking lower today as investors move into more secure assets. Volatility is not moving too much, and aside from the elevated CBOE put/call index from the start of the day, volatility has moved steadily lower throughout the trading session.

Tuesday, November 13, 2018

Daily Writing

9:44 AM

The yield on the 10-year Japanese government bond currently sits at 0.10%. Who buys Japanese bonds? How is it possible for yields to move lower or even be negative?

Oil is down more than 7.00% today. What is the cause of this?

4:59 PM

There isn’t really anything in my trading that has left me frustrated the past few days, despite the markets continuing to move lower. I am working on managing my psychology. I feel scattered much of the time, like there are a million things to do but not enough time to do or even think about everything. What can I do to continue moving forward? It takes a lot for me to reveal what I’m thinking inside. I’m not great at sharing. Something I learned from reading the analects of Confucius is that no matter what your state of mind, the most basic thing you can share with the world is a positive mindset and attitude. Smile more.

The markets were flat today overall. News came out that the UK and EU reached an agreement on principal to move Brexit forward. Now the UK must bring their proposal to UK parliament for approval. The whole thing seems like a mess to me.

Friday, November 9, 2018

Daily Writing

1:05 PM

Markets are down today overall. The question is whether the past week was a false breakout to the upside or if will see continued momentum higher toward the end of the year. The price of crude oil continues to drop as we are now retesting February lows. If crude oil drops below $60/barrel it would have disastrous effects on the U.S. shale industry, as prices need to remain above $60/barrel for the industry to remain solvent.

Bond yields ticked higher throughout the week. While yields on the 10-year U.S. Treasury note remain elevated, it is not clear if the yield will continue to move higher and eventually break through the 3.25 level for the long term. Bond yields have been artificially suppressed for quite some time, and it seems reasonable to believe that we could see bond yields move into the 3.50% to 4.00% range, at least temporarily. Side note: Brazilian U.S. Treasury yields ticked steadily higher throughout the past week.